Harbour Energy (LSE:HBR), a significant player in the oil and gas sector, is currently offering a substantial dividend yield of 9%. This yield surpasses the interest rates of many UK savings accounts, making it an appealing option for investors seeking passive income. However, the stock’s recent performance raises questions about its sustainability.
Despite the attractive dividend, Harbour Energy has seen a decline in investor sentiment. Following its Q4 2025 trading update on January 22, which revealed a projected increase in free cash flow (FCF) to $1.1 billion, the company’s share price fell by 7%. This decrease in share price has increased the stock’s yield, prompting experienced investors to consider the implications of such a high return.
In a recent statement, Harbour Energy indicated a shift towards a “payout ratio approach,” which will incorporate a base dividend alongside share buybacks. This strategy is designed to align the company’s dividend policy with its peers. The upcoming announcement of the full-year results in March 2025 will clarify the company’s future dividend plans. Until then, speculation regarding potential payouts remains prevalent.
The current dividend payout of $455 million is considerable, especially with projected lower FCF of $600 million for 2026. Investors might brace for a possible reduction in dividends this year, as the company adjusts its financial strategy.
In comparison to other UK-listed independent producers, Harbour Energy’s situation reflects a broader trend within the sector. For instance, Energean Oil & Gas, which operates in the Mediterranean and the UK, has maintained a consistent dividend of $0.30 per share for the past 14 quarters, currently yielding 9.6%. This fixed payout approach contrasts with Harbour’s more variable strategy.
On the other hand, Ithaca Energy has displayed significant volatility in its dividends since its listing in November 2022, currently boasting a yield of 12.9%. The company targets annual dividends between 15%-30% of post-tax net cash from operating activities. In contrast, Kosmos Energy does not currently offer any dividends, highlighting the diverse strategies within the sector.
The energy sector’s earnings are notoriously unpredictable, complicating future dividend forecasts. Nevertheless, Harbour Energy’s strategy of expanding overseas aims to offset the impacts of the UK government’s windfall tax. This initiative has already contributed to a $300 million reduction in net debt during 2025.
Investing in the energy sector may not appeal to all investors, yet Harbour Energy remains an intriguing option. Even if the company reduces its dividend by 50% in 2026, it would still yield more than many traditional savings accounts. This return, combined with the company’s strategic moves, makes Harbour Energy a stock worth considering for those seeking potential income streams.
In light of the current market dynamics, investors should remain vigilant as they await updates from the company. The forthcoming announcement in March will provide critical insights into Harbour Energy’s financial health and dividend strategy.
